Exam 10: Inventory Models

Chez Paul Restaurant orders special Styrofoam "doggy bags" for its customers once a month and lead time is one week. Weekly demand for doggy bags is approximately normally distributed with an average of 120 bags and a standard deviation of 25. Chez Paul wants at most a 3% chance of running out of doggy bags during the replenishment period. If he has 150 bags in stock when he places an order, how many additional bags should he order? What is the safety stock in this case?

The single-period inventory model is most applicable to items that are perishable or have seasonal demand.

Which cost would not be considered part of a holding cost?

For the EOQ model, which of the following relationships is incorrect?

Explain the difference between a periodic and a continuous review system.

Safety stock

Henderson Furniture sells reproductions of 18th century furniture. For a particular table, the assumptions of the inventory model with backorders are valid. D = 200 tables per year I = 25% per year C = $800 per table C_o = $80 per order C_b = $50 per table per year The store is open 250 days a year. a.What are the values for order quantity and number of planned backorders that will minimize total cost? b.What is the maximum inventory? c.What is the cycle time? d.What is total cost?

Periodic review inventory systems

The EOQ model

Daily demand for packages of five videotapes at a warehouse store is found to be normally distributed with mean 50 and standard deviation 5. When the store orders more tapes, the ordering cost is $42 and the orders take 4 days to arrive. Each pack of tapes costs $7.20 and there is a 24% annual holding cost for inventory. Assume the store is open 360 days a year. a.What is the EOQ? b.If the store wants the probability of stocking out to be no more than 5%, and demand each day is independent of the day before, what reorder point should be set? c.How much of your reorder point in part b) is safety stock?

Derive and explain the total cost expression for the EOQ model.

The terms "inventory on hand" and "inventory position" have the same meaning.

When quantity discounts are available, order an amount from the highest discount category.

Inventory position is defined as

The maximum inventory with backorders is

What could be meant by service level? Why is a clear understanding of this term important?

Annual purchase cost is included in the total cost in

To be considered as inventory, goods must be finished and waiting for delivery.

The definition of service level used in this chapter is

The objective of the EOQ with quantity discounts model is to